Smartflash v. Apple: After $500M Verdict, District Court Grants New Trial on Damages Based on Improper Use of Entire Market Value Jury Instruction

After a jury returned a verdict against Apple, Apple filed a motion for judgment as a matter of law or a new trial. The district court subsequently notified the parties pursuant to Rule 59(d) that it was considering granting a motion for a new trial for a reason not stated in Apple’s original motion.

During the trial and apparently at Apple’s request, the district court instructed the jury on the entire market value rule. Smartflash had argued that it did not employ the entire market value rule at trial and instead employed an apportionment analysis.
At the post-trial hearings on the issues, the district court asked Apple: “In your view, is this an entire market value rule case, or is this an apportionment case?” Instead of responding to the district court’s question, Apple stated that “[e]ither this is not an entire market value case, which is the Smartflash current position. . . . If that’s true, Your Honor, then a new trial is required because the jury was instructed on entire market value and . . . there is no basis for that jury instruction.”

The district court then found that Smartflash did not attempt to apply the entire market value rule, and the district court then agreed with Apple’s argument that a new trial on damages was necessary in light of the instruction provided to the jury.

As explained by the district court, “Smartflash attempted to take salable, multi-component products and ‘apportion the defendant’s profits and the patentee’s damages between the patented feature and the unpatented features’ of those products. Garretson v. Clark, 111 U.S. 120, 121 (1884). For example, if the Court assumes (for this purpose) that the jury defined the entire market as only the sales of certain iPhone, iPad, and iPod Touch devices, which are all salable units that–based on the jury verdict–practice the patented software invention, then Smartflash subtracted from the royalty base a portion (77%) of the total value of these sales based on the answer to particular consumer survey questions. At its root, then, Smartflash’s royalty base encompassed about 23% of the total revenue generated by the sales of the accused products, not 100% of it. Smartflash then multiplied a royalty rate (also based on a consumer survey) with this royalty base to calculate its ultimate reasonably royalty estimate.”

The district court then explained that “Smartflash’s damages model–with a degree of oversimplification–apportions familiar inputs to the royalty base and rate calculations by using the results of two consumer surveys (one that asks about whether the consumers were motivated to purchase the accused products because of the infringing features). In other words, through the use of survey questions, Smartflash attempted to apportion for the jury ‘the incremental value that the patented invention adds to the end product.’ Ericsson, Inc. v. D-Link Sys., Inc., 773 F.3d 1201, 1226 (Fed. Cir. 2014).”

The district court then concluded that “the confusion created by the instruction noted above warrants a new trial on damages in this case. The Court is persuaded, in the clarity of post-trial hindsight, that such instruction may have created a skewed damages horizon for the jury. It is the Court’s duty to view any and all proposed instructions critically and with an eye toward accurate compliance with the law coupled with effective and fair guidance for the jury. Post-trial motion practice exists to provide an opportunity to correct (and when necessary retry) matters not properly tried in the first place.”

Stan Gibson, an experienced technology and IP trial lawyer, represents inventors, manufacturers, owners and others in litigation centering on complicated technology. Stan's practice is national in scope and he represents both plaintiffs and defendants and has litigated dozens of cases on behalf of his clients, taking many of them to trial. Although most cases settle, Stan's ability to take cases to trial enhances their value and drives favorable verdicts and settlements. Contact him at 310.201.3548 or SGibson@jmbm.com.

Greg Cordrey, an experienced patent litigator and former flight test engineer, represents a wide range of industries including medical device, computer, e-commerce, semiconductor, automotive, aircraft, and consumer products. He has litigated patent cases nationwide and has practiced before the Federal Circuit and the U.S. Patent and Trademark office as a registered patent attorney with experience in concurrent litigation and patent reexamination proceedings. Greg is recognized as one of the "Best Lawyers in America" in IP Law, as well as a "Super Lawyer" and "Rising Star." Contact him at 949.623.7236 or GCordrey@jmbm.com.

Rod Berman is recognized by the Daily Journal as one of the top 30 intellectual property attorneys in the State of California, and by the Los Angeles Business Journal as one of the top 100 attorneys in Los Angeles. Rod's practice focuses on patent, trademark, copyright, unfair competition and internet responsibilities and includes counseling, litigation, opinions, licensing and prosecution. In addition to being a registered patent attorney, Rod is a court-recognized expert in patent and trademark law, and has successfully argued before the Federal Circuit. Contact Rod at 310.201.3517 or RBerman@jmbm.com.

Andrew Shadoff, is a litigation associate who has assisted in prosecuting and defending patent infringement lawsuits involving mechanical devices. He has drafted successful summary judgment motions and pretrial motions in limine, and has assisted with trial and witness preparation. Contact him at 310.712.6856 or AShadoff@jmbm.com.

Joe Mellema's practice focuses on litigation in federal and state courts, including the protection and enforcement of intellectual property rights, and business and commercial disputes. He has handled patent, trademark, copyright, trade secret, unfair business practices, antitrust, and business and commercial lawsuits in all phases of litigation and arbitration. In addition to a law degree, he has dual degrees in electrical engineering and physical sciences, and was formerly a systems engineer at Raytheon Company. Contact him at 949.623.7232 or at JMellema@jmbm.com.

Rachel Capoccia

Rachel Capoccia focuses on technology-based litigation and counseling, with an emphasis on patent litigation, copyright litigation and other technology-related matters. Her legal experience is complemented by 10 years working at IBM as a software engineer before law school, during which she led a team of engineers who developed computer graphics software and computer aided design systems. She represents clients in all phases of patent infringement matters involving diverse areas of technology. Contact Rachel at 310.201.3521 or RCapoccia@jmbm.com.

Jessica Newman is a litigation associate, and a member of JMBM's Patent Litigation Group. She is involved in all aspects of litigation and has assisted in representing clients in a variety of industries with regards to patent infringement and copyright infringement issues. Contact her at 310.785.5372 or JNewman@jmbm.com.